BUSINESS VALUATION &
SELLING YOUR BUSINESS
Alina Niculita,
CFA, ASA, MBA
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Purpose of Valuation
Buying or selling a business
Buying or selling a partial interest
Obtaining or providing financing
Initial public offering
Leveraged buyout
ESOP
Estate, gift and income tax
Buy/sell agreements
Divorce settlements
Damage cases
Mergers and acquisitions
Dissenting shareholder actions
Determining life insurance needs
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Controlling Interest v. Minority
Interest
Control
Marketability
Controlling Interest > Minority Interest
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Controlling Interest v. Minority
Interest
HYPOTHETICAL EXAMPLE
Controlling Interest Value per Share: $1,000
Less: Discount for Lack of Control:
0-20%
Less: Discount for Lack of Marketability: 0-30%
Total discounts:
0-50%
Minority Interest Value per Share: $500-$1,000
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Standard (Definition) of Value
Fair Market Value
Tax Purposes
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Standard (Definition) of Value
Fair Value
Shareholder Disputes Purposes
Divorce Purposes
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Standard (Definition) of Value
•
Fair Market Value. Usually assumes discounts for lack
of control and lack of marketability
•
Fair Value (Control Value). Usually without any
discounts
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Standard (Definition) of Value
• Strategic (Acquisition) Value. Mergers and
acquisitions purposes
• Investment Value. Divorce purposes.
• Intrinsic or Fundamental Value.
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Premise of Value
Going concern value
Liquidation value
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Valuation Date (“As of” Date)
• Internal Factors
• External factors
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Understanding the engagement
Purpose of our valuation?
Standard of Value?
Controlling/Minority Interest?
Premise of Value?
Valuation date?
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Overview of the Valuation
Process
.
Step 6: Value & Delivery
Step 5: Sanity Checks
Step 4: Discounts & Premiums
Step 3: Valuation Approaches
Step 2: Financial, Economic & Industry Analysis
Step 1: Understanding the Engagement
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Summary of business valuation
approaches and methods
Income Approach
Market Approach
Asset Approach
Based on the present
value theory
Based on the economic
principle of substitution
Current value of all
assets (tangible and
intangible) less current
value of all liabilities.
Methods:
 Discounted Cash
Flow Method
Primary Methods:
 Transaction method
 Public guideline
company method
 Capitalization method
Other methods:
 Past transactions
 Buy-sell agreement
 Rules of thumb
Methods:
 Adjusted net asset
value
 Excess earnings
method
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Planning for business exit
•
5 years good rule of thumb
• 3-7 years
• 10 years (significant tax planning)
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Business value enhancements
Financial statement clean up - CPA
Improve key operating metrics - Industry
Consultant
Employment/confidentiality agreements signed Attorney
Proper ownership of all intellectual property. Attorney
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Who are Potential Buyers for my Business?
Internal
Transition
Options
•
•
•
•
External
Transition
Options
• Outside third party interested in
acquiring a business.
• Strategic buyer in the company’s
industry or related industry.
• Private equity group or other
passive investor group.
Family
Other existing owners
Key management
Employees
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Buy-Sell Agreements
•
Contracts between companies (corporations, LLCs, or
partnerships) and their owners.
•
What will happen with the owner’s interest when certain
events (called “trigger events”) occur.
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Appraiser’s Qualifications
• American Society of Appraisers: FASA, Fellow of the ASA;
ASA, Accredited Senior Appraiser; AM, Accredited Member.
• AICPA: ABV, Accredited in Business Valuation
• National Association of Certified Valuation Analysts: CVA,
Certified Valuation Analyst; AVA, Accredited Valuation
Analyst.
• Institute of Business Appraisers: MCBA, Master Certified
Business Appraiser; CBA, Certified Business Appraiser
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Build Advisory Team
• Business Transition Advisor/Exit Planner
• CPA (tax)
• Attorney(s) of various specialties (tax)
• Business Appraiser/Valuation Analyst
• Business Intermediary/Business Broker
• Industry Consultant
• Financial Planner
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Maximizing my Sales Proceeds
20
Best Case and the Nightmare
Tax Description
Fed Individual Cap Gain
Best
Case –
All Cap
Gains
Worst Case
– C-Corp
Double
Taxation
20%
Fed Invest Income
3.8
Fed Deduction Phase
Out
1.2
Fed Corp Rate
NA
34
10
10
NA
7
35%
71%
Oregon Corp Rate
Total
There are planning
strategies that exist to
minimize the C-Corp worst
case taxation rate.
20%
Fed Dividend Rate
Oregon Individual Rate
•
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THANK YOU
Alina.niculita@outlook.com
Linked in: Alina Niculita
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